Monthly Archives: May 2014

Few traits affect our self-esteem as profoundly as IQ and income, so suggesting that the two are correlated makes a lot of people unhappy. While many people will concede that such a correlation exists, they will insist on making certain caveats, such as that IQ is only important below IQ 120 (see Malcolm Gladwell) or that IQ is only important because it reflects the social class you were raised in. Even the Lion of the Blogosphere, got in on the act, writing:

While noting that IQ is as unimportant as it is, it is probably even less important for people who go to college, because low IQ is a better predictor of poverty than high IQ is a predictor of financial success. In fact, there is other evidence out there to suggest that, after educational credentials are accounted for and for those who have at least a college degree, higher IQ is actually correlated with lower income. (The corollary is that IQ is a useful predictor of income for people who do not have a college degree, because people without college degrees but with higher IQ are more likely to wind up in skilled blue-collar careers. For example, there are many civil service jobs that pay decent middle-class salaries which use g-loaded tests for hiring purposes.)

But is this true? In a fascinating 1996 analysis (see Figure 2) people with a four year college education were divided into five categories based on cognitive ability, with level 5 being the brightest and and level 1 being the dullest, and their weekly wages reported. The result was that college grads with level 5 intellect typically made $631 a week, level 4 made $561 a week, level 3 made $503 a week, level 2 made $466 a week and level 1 made $357 a week. So even among people who all have a college degree, there’s a very clear positive meaningful correlation between IQ and income.

A similar pattern was found among those with just a high school education, except here incomes were depressed for all intellect levels, showing that education affects income independently of IQ. With only a high school diploma, level 5 intellects now typically made only $447 a week, level 4 made $340 a week, level 3 made $320 a week, level 2 made $294 a week, and level 1 made $265 a week.

So while high IQ helps makes you richer, regardless of whether you have a college degree or not, the Lion is also correct to emphasize the importance of college. College grads make more money than high school grads, even when they’re three levels dumber.

Yesterday the Lion of the Blogosphere discussed IQ and income, but once again he framed it in terms of low IQ predicting poverty, rather than simply stating that IQ and money are correlated. That’s because the Lion believes that the IQ income correlation is stronger in the lower half of the IQ distribution. But is he right? Perhaps at the extremes. For example, severe mental disability precludes one from having a high income, but severe giftedness does not preclude one from having a low income.

Such outliers aside, the correlation between IQ and income seems to be about the same for both halves of the bell curve. For example Charles Murray (see TABLE 2-1), reports the median earned income of young adults by IQ (1993 dollars):

Very Bright (About IQ 125): $36,000

Bright (About IQ 115): $27,000

Normal (About IQ 100): $21,000

Dull (About IQ 85): $13,000

Very Dull (About IQ 75): $7,500

The Very Brights are $15,000 better paid than normal, while the very dulls are $13,500 worse paid than normal. In other words, high IQ is more of an asset than low IQ is a liability. Also notice that the income difference between the Brights and the Very Brights is $9000 while the income difference between the Dulls and Very Dulls is only $5,500. In other words, IQ is making a bigger difference at the higher end than the lower end. Both findings are hard to square with the Lion’s world view.

You can also look at it the opposite way (average intelligence for a given income). For example, college bound kids from the bottom 10% of household incomes (about $17,500 in 2008) averaged around 1323 out of 2400 on the SAT. College bound kids from the median income households (about $51,000) averaged about 1461 on the SAT, and college bound kids from the top 10% of family incomes (about $160,000 in 2008) averaged about 1628 on the SAT. So the cognitive gap between rich kids and middle class kids (167 points) is greater than the cognitive gap between middle class kids and poor kids (138 points). If the intelligence income correlation were stronger at the lower end, the opposite would occur.

So the preponderance of evidence suggests that the IQ income correlation is about as strong or stronger for the top half of the IQ distribution as it is for the bottom half. It’s just that dumb rich people are more noticeable than smart poor people..

Recently I noted that the vast majority of Americans earn five figures a year (middle class) and by definition the average American has an IQ of about 100. I also pointed to studies showing that the homeless earn three figures a year and have an average IQ of 84. I used these two facts to hypothesize that for every ten fold jump in economic class, average IQ increases by 8 points.

Several skeptics warned that I could not infer a pattern from only two data points (the homeless and the middle class). But I now have a third data point: Welfare recipients. It’s common knowledge in psychometric circles that reading comprehension correlates very well with IQ and a literacy study found that about 2/3 to 3/4 of adult welfare recipients (about 71%) have what’s classified as Level 1 or Level 2 literacy. By contrast, 1/2 of the general adult population are at these levels. Since by definition, 1/2 of Americans have IQ’s below 100, it can be deduced that 71% of welfare recipients have IQ below 100. In a normal distribution, the 71 percentile is 8 IQ points (0.53 sigma) above the mean, so if IQ 100 is the 71 percentile among welfare recipients, the average welfare recipient should have an IQ 8 points less.

In other words, American welfare recipients average IQ 92, which is exactly what my model predicted was the average IQ of four figure income earners.

Since intelligence can be defined as the cognitive ability to adapt (to turn situations to your advantage; problem solve), it’s only natural that IQ and money should be correlated. For what could be more adaptive in a capitalist society than getting rich? On the other hand, there’s a lot more involved in making money than just IQ. Hard work, ambition, family connections, greed, luck, looks, health, personality, ruthlessness and special talents can all also play important roles. Thus while there’s reason to expect IQ and income to be correlated, the correlation should be modest given all the other factors. Indeed only about 16% of the variation in income can be explained by IQ.

But even small correlations can have big effects at the extremes. At the poorest extreme you have the homeless. For example, a 1986 study of homelessness in Chicago found that panhandling income averaged $7.00 per month. Adjusted for inflation (that study is 28 years old) that’s $15.14 a month or about $182 a year (a three figure income).

Meanwhile, a study of 90 Milwaukee homeless men found they had an average IQ of about 84 on an abbreviated version of the Wechsler Adult Intelligence Scale. In other words, Americans at the bottom of the economic ladder (those earning three figures a year) average IQ 84. By contrast the median American earns five figures a year and by definition has an average IQ of 100. Extrapolating from these two data points, one can estimate that average IQ increases by 8 points for each figure of individual income. In other words:

Some people may question the wisdom of extrapolating IQ differences between the middle class and the homeless all the way up to the highest levels of income. For example, the Lion of the Blogosphere argues that IQ is a better predictor of poverty than it is of wealth. However the linear extrapolation seems to yield valid results. For example, based on their academic credentials, scholar Jonathan Wai estimates that 45% of billionaires have IQ’s in the top 1% of America (IQ 135) which implies the typical billionaire has an IQ somewhere in the low 130s. Since billionaires have ten figure net worths, it seems reasonable to assume they have roughly nine figure incomes (since earning hundreds of millions a year, should eventually translate into amassing over a billion) and my model estimates that nine figure earners should average IQ 132. U.S. presidents resemble billionaires or nine figure income earners, because although presidents have “only” a six figure income, their lifestyle of living in a colossal mansion with servants, secret service protection, stratospheric power and flying by private jet, resembles the life of a billionaire. Evidence suggests U.S. presidents also average IQ’s in the low 130s.

The only people who may rank higher than U.S. presidents, nine figure earners, and most billionaires, are people who earn ten figures a year. These are people who amass eleven figure net worths (in other words, the self-made decabillionaires). It may seem outrageous to suggest that even the highest economic class has an average IQ as extreme as 140 (above the 99.5%ile of Americans) but this level of self-made financial success is dominated by people like Bill Gates, Mark Zuckerberg, the Google co-founders…in other words, math and technology types, often from extremely prestigious universities.

There was an interesting article in The Telegraph several years ago about an Australian study found that height was positively correlated with income. For example 6ft tall men typically earned about 1.5% more than 5’10” men. Taller women also out-earned shorter women, though the effect was only half as large. The study also found that fat people earned just as much as skinny people, which is surprising because being fat would seem to lower productivity more than being short, particularly in jobs that require energy and stamina. This may suggest that there’s more discrimination against short people than there is against fat people. This may be because fatness is seen by many as a lifestyle choice while shortness may be seen as an intrinsic flaw. Obesity is also a relatively recent epidemic caused by the advent of modern mass food production, and there may not have been enough time for humans to evolve an innate prejudice against it.

Despite the correlation between height and income, the article notes that Bill Gates and Warren Buffet (both of whom have been America’s richest man) both have a fairly average height of 5’10”. I suspect this is because both men earned their wealth through business income, not salary. It’s the latter that’s probably more correlated with height because high salaries often require being promoted to positions of leadership where people want someone they can look up to (figuratively and literally) while successful entrepreneurs are often shorter because they started the business themselves and don’t have to be promoted.

According to the book A Question of Intelligence by Daniel Seligman, the IQ’s of Richard Nixon and JFK were both tested in school at 143 and 119, respectively. The IQ of George W. Bush is not known, but he scored 1206 on his SAT back in the days when the test was much harder. Since the reading and math skills measured by the SAT relate closely to intelligence, psychologist Linda Gottfredson converted his SAT score into an IQ equivalent of 125. There’s some speculative information about Obama’s intelligence, but the IQ’s of Nixon, JFK, and GWB are the best established. Based on this very small sample, U.S. presidents have an average IQ of about 130 with a standard deviation of about 12, compared to the general U.S. population that has an average IQ of about 100 with a standard deviation of about 15. So although presidents tend to be much smarter than Americans as a whole, their IQ’s are less variable. In fact extrapolating from these statistics, one might expect that the smartest president in American history had an IQ of around 154 and the dullest had an IQ of around 106.

An average IQ of 130 is extremely high, putting one above nearly 98% of Americans. To put this number in perspective, Harvard, the most prestigious university in the entire world, also has an average IQ of 130. Even the dullest president in U.S. history was likely smarter than two thirds of Americans of his era. The high IQ’s of U.S. presidents demonstrates that America is meritocracy and that smart people get to the top.

In the book A Question of Intelligence, author Daniel Seligman notes that mob leader John Gotti had a tested IQ of 110. Seligman found this figure to be quite plausible because criminals average IQ’s around 90, so an IQ of 110 was enough for Gotti to climb to the top of the crime world. Similarly, Charles Manson had a tested IQ in the 109-121 range. The people who killed for Manson probably had IQ’s around 90, but Manson being about 19-31 points higher, could easily manipulate them.